Entrepreneurs have to overcome all kinds of hurdles, and surprise litigation is definitely one of them. In 2018, small businesses paid out 53% of the country’s commercial liability tort costs.
You may well have the mettle to steer your business through that kind of hassle, but that doesn’t mean you should. Having solid contracts can go a long way toward helping you avoid some of the more common reasons for litigation.
Clear, specific client agreements outline expectations and reduce potential misunderstandings or disputes.
While contracts vary significantly according to the business and clients involved—which is why you should avoid generic contracts—most client agreements will need to cover certain shared basics such as deliverables, timelines, and payment schedules and amounts.
Outline goods and services
Your client contracts will need to lay out the goods, services, or project you’re working on in as much detail as possible. The more specific the description, the less chance for litigation.
Be sure to include timelines and milestones. If one party has concerns, these check-in points allow potential issues to be clearly addressed early in the process.
Pricing and payment timelines should be included, too.
Curtail your liability
Liability may become a point of negotiation in drafting your client contracts. Basically, a liability clause helps protect you from being sued—or puts a limit on how much you can be sued for—if things go awry.
For obvious reasons, you’ll want this amount to be as small as possible. And your client will likely feel otherwise.
You’ll also want to establish terms for how to resolve minor bumps in the road. Especially during the pandemic, tangible deliverables can be delayed. Decide now how you’ll handle price jumps, delays, or product running out. There’s a big difference in a shipment being delayed by two days versus two months.
Understand NDAs before you sign
Non-disclosure agreements (NDAs) are clauses—or sometimes their own separate contracts—that protect non-public information.
NDAs exist for many reasons, including protecting research, client lists, trade secrets, business plans, patents, investors, potential partners, proprietary information, and more.
Clients in certain fields may ask that an NDA be included in the contract. Ideally, all contracts should be drafted and reviewed by an attorney, but that’s especially true with NDAs. At the very least, be sure to check in with a lawyer to make sure that you understand your rights and responsibilities before signing an NDA.
Plan for disputes and early termination
While a quality contract will note how long an agreement will last, there are times when one party needs to end the agreement early.
Having certain steps in place can help lessen the potential stress to both parties. In addition to reaching an agreement on notice and reasons to end the contract, you’ll want to address any financial penalties for early termination and how payments will be handled if the contract is only partially fulfilled.
It can also be helpful to address attorney fees or a preference for mediation over litigation. Even with early termination or dissolution clauses in place, it’s still possible that one side will fail to meet their obligations. But litigation is costly and time-consuming. If you have a route for mediation—a process where you negotiate under the guidance of a neutral, third party—written into the contract, it can save both sides stress and money.
Contracts only provide you with legal protection if they’re up to date. Make sure to tweak and revise details as your working relationship with a client evolves—again, detail is your friend.
If you have questions about drafting, reviewing, updating, or enforcing business contracts, contact us. Our experienced Texas attorneys can guide you through the process.